Hong Kong Tax System Overview

Governing Authority

The Inland Revenue Department (IRD) is the government body responsible to collect tax revenue and for the administration of the Ordinance and the Rules and Regulations made under the Ordinance.

Territorial Source Principle of Taxation

Hong Kong adopts a “territorial source principle” of taxation. Only profits which have a source in Hong Kong is chargeable to tax under the IRO. Profits sourced elsewhere are not subject to Hong Kong profits tax.

In simple terms, this means that a company who carries on a business in Hong Kong but derives profits from another place is not required to pay tax in Hong Kong on those profits. No tax is levied on profits arising abroad, even if they are remitted to Hong Kong.

Many places levy tax on a different basis. Unlike Hong Kong, they tax the world-wide profits of a business, including profits derived from an offshore source.

Type of Taxes in Hong Kong

The taxes levied under the IRO are :-

Profits Tax

Companies carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business.

There is no distinction made between resident and non-resident. A resident may therefore derive profits from abroad without suffering tax; conversely, a non-resident may suffer tax on profits arising in Hong Kong.

Foreign companies carrying on business in Hong Kong are charged to tax on the same basis and at the same rate of tax as local companies.

The current profits tax rate is 16.5% on assessable profits.

Salaries Tax

Salaries tax is imposed on individuals’ income arising in or derived from Hong Kong from an office, employment or pension. In deciding whether income “arises in or is derived from Hong Kong”, it is necessary to establish where the employment, i.e. the source of income, is located.

Individuals are taxed at progressive rates on their net chargeable income (i.e. assessable income after deductions and allowances) starting at 2% and are capped at 15% of the net income without allowances, i.e. total assessable income less total deductions only.

Property Tax

Property tax is levied on the owners of real estate which is situated in Hong Kong. A company letting property in Hong Kong is regarded as carrying on business in Hong Kong and should be subject to profits tax in respect of its property income.

Property Tax is computed at the standard rate on the net assessable value of the property. The standard rate is currently 15%.

Other Key Facts on Hong Kong Taxes

Capital Gains Tax

There is no capital gains tax in Hong Kong. Capital gains are outside the scope of charge for tax in Hong Kong.

Dividend Tax

Dividend income, whether from Hong Kong or overseas, is not taxable. Dividends paid to either a resident or non-residents of Hong Kong are not subject to any withholding tax.

Withholding Tax

Withholding tax is the tax charged to a non-resident entity that derives income from a Hong Kong source for services provided or work done in Hong Kong.

Only specific types of payments are subject to withholding tax in Hong Kong such as royalties and fees paid to non-resident entertainers or sportsmen for their performances in Hong Kong.

There are no withholding taxes levied on dividends and interest.

VAT Tax

VAT tax is also known as Goods and Services Tax (GST tax) in some countries. There is no VAT or sales tax imposed in Hong Kong.

Estate Duty

Estate duty is, also known as death tax or inheritance tax in some countries, a tax charge on the net principal value of the property (movable and immovable) situated in Hong Kong that passes on a person's death.

Estate duty has been abolished in Hong Kong since 11 February 2006. No estate duty is payable in respect of estates of persons passing away on or after that date.

Stamp Duty

Stamp duty is chargeable on certain documents specified in the First Schedule to the Stamp Duty Ordinance which imposes fixed duty on some documents and an ad valorem duty on others. Fixed duties vary from $3 to $100 whereas ad valorem duties range from 0.1% to 4.25%.

Sale and purchase of Hong Kong stock require the preparation of contract notes on which buyers and sellers have each to pay ad valorem duty at the rate of 0.1% of the consideration.

In all cases, the Collector of Stamp Revenue is empowered to charge stamp duty based on the market value of the property conveyed or stock transferred if he is of the opinion that the consideration is inadequate.

Customs and Excise Duty

Hong Kong is a free port. There is no tariff on general imports. However, there is duty on liquors, tobacco, hydrocarbon oil and methyl alcohol.

Duties are charged at specific rates per unit quantity for tobacco, hydrocarbon oil and methyl alcohol.

For liquors, duty is assessed at different percentages of their values on the basis of three different categories defined broadly according to alcoholic strength.

There is no tax or excise duty on exports from Hong Kong.

Current Tax Rates in Hong Kong

Tax Rates for Companies

Income

Tax Rate

Tax rate on corporation profit

16.5%

Tax rate on capital gains

0%

Tax rate on shareholder dividends

0%

Tax rate on foreign-sourced income

0%

Tax Rates for Individuals

Income (in HK$)

Tax Rate

On the 1st HK$1-40,000*

2%

On the Next HK$40,001-80,000*

7%

On the Next HK$80,001-120,000*

12%

Amount above HK$120,000*

17%

Tax rate on capital gains

0%

Tax rate on income earned overseas

0%

Tax rate on dividends from a HK company

0%

* Represent net chargeable income = Income - Deduction - Allowances

# Standard rate on net income (i.e. without allowance and deduction) is 15%